GRANTS FOR DEVELOPMENT FUNDS – 10 July 2002

[ELEVENTH STANDING COMMITTEE ON DELEGATED LEGISLATION – DRAFT CARIBBEAN DEVELOPMENT BANK (FURTHER PAYMENTS) ORDER AND DRAFT AFRICAN DEVELOPMENT FUND (ADDITIONAL SUBSCRIPTIONS) ORDER 2002] 

Dr Julian Lewis: There is an obvious and great attraction in serving on a Committee under your chairmanship, Mr Griffiths. I am deeply sorry that my hon. Friend the Member for Meriden (Caroline Spelman) cannot be here today, but by long prearrangement she is hosting the visit of former President Gorbachev in a room not far from this one. I hope that my best efforts will not be too poor a substitute for her encyclopaedic knowledge of these matters. 

The spirit of our approach is as it was in January 2000, when similar measures were considered in relation to the African Development Bank. Successive Governments of different political persuasions have supported those bodies and the making of contributions to them. However, our debate on sustainable development and aid for poverty diseases two days ago, with the same Minister, showed a great level of concern about the situation in Africa in the context of the AIDS pandemic. That concern was expressed on both sides of the House. I am sure that the Under-Secretary will understand that, in those circumstances, we have sought to frame some rather more rigorous questions and searching points in relation to the African Development Fund than might have been the case in less harrowing circumstances. In a spirit of co-operation, I gave her the opportunity to have a brief prior look – too brief for her opening remarks, but perhaps not too brief for those that she will make later – at the 12 points that I wish to raise in relation to the African Development Fund. I have fewer points to make about the Caribbean Development Bank; they are more discursive and she will find that absence of advance notice of them is no handicap.  

Another point about the African Development Fund is that we are being asked to approve the substantial sum of £40 million not as part of a final replenishment settlement, but as something to tide us over because the ninth replenishment settlement has not been reached. That is a different situation from that appertaining to the Caribbean Development Bank, in which at least we know the outcome of the fifth replenishment negotiations.  

The UK contribution to the eighth replenishment of the African Development Fund, covering the period 1999–2001, was just over £98.6 million. The proposed £40 million is an interim contribution to the ninth replenishment. When are the negotiations for that likely to be concluded? What indication can the Under-Secretary give us of the scale of the UK's likely final contribution?

I appreciate that the Under-Secretary touched on some of these points in her opening remarks, but what methods does DFID employ to monitor the application of funds donated to the ADF? That point was raised by my hon. Friend the Member for Billericay (John Baron). Thirdly, are DFID officials or other agents on hand directly to evaluate the success or otherwise of funded projects in Africa?

If these initial questions seem too intrusive, I would refer to the First Standing Committee on Delegated Legislation on 25 January 2000, when the then Under-Secretary, the right hon. Member for Carrick, Cumnock and Doon Valley (George Foulkes) commented that

''The African Development Fund is the concessional lending arm of the African Development Bank. It provides about 1 billion a year of development assistance to 39 of the poorest countries that are not creditworthy enough for African Development Bank loans. The fund is largely financed by donor contributions.'' 

He then pointed out that replenishment negotiations for the fund provided an important opportunity for donors to set priorities and the policy and operational agenda for fund activities over the next three years. In the light of what he said then, it seems fair to ask how that monitoring process, and that ability to set priorities and to assess whether or not goals have been achieved, has worked out during the last period during which the fund has been in operation.  

Rev. Martin Smyth (Belfast, South): In one recent report, I heard that many of the donor countries were demanding consultancies, so the money, instead of going to the countries where it is needed, comes back to the donor countries. How much of this money is coming back through consultancy fees and other activities? 

Dr Lewis: I am very grateful to the hon. Gentleman for alerting us to that point. I hope that the Under-Secretary will be able to address it directly. 

Reverting to the comments that were made in January 2000, the then Under-Secretary pointed out that the Secretary of State had approved publication of the DFID institutional strategy paper for the African Development Bank. That set out the Government's objectives for working with the bank for the next three years. I am a little unhappy about what were then set out as the three main objectives of the Government, and I want to take a little time to list them so that people can see whether we have a specific goal in mind when we make such donations, or whether our goal still borders too much on vagueness.  

The first aim of the Government as set out in January 2000 was to continue their support

''for the strengthening of the bank through the on-going programme of institutional reforms introduced by the president''. 

We know why that was. The bank had gone off the rails, and a better president had taken control of it and was trying to improve the situation. Nevertheless, it is a little like running to stay in the same place when one of the three main aims is simply to support the bank in getting its act together as an institution.  

The second aim is

''to help the bank to improve its poverty focus so that it can play its part in contributing towards achievement of the international development targets''. 

Again, should it be necessary for a major aim of the Government to be to assist the bank to improve its ability to focus on the problems? I would have thought that the bank's role was to help to solve the problems. If it has trouble focusing on them in the first place, that makes one wonder how effective the organisation is at supplying solutions rather than simply identifying or focusing on problems.  

Mr John Baron (Billericay): In one respect, I can see why the Government have mentioned that, as focus is terribly important. For example, we are all aware that the EU overseas aid package does not focus on its prime objective of relieving poverty across the globe. Instead, it pursues political objectives on its borders. The top 10 recipients are all countries that border the EU. Unless the focus is right, the delivery hardly follows. 

Dr Lewis: I am grateful to my hon. Friend. If an intermediate organisation is between the gift and the recipient for whom one intends the gift to do good, it is important that that organisation is kept up to the mark, is shown to be capable and applies the funds that one gives it for the purposes for which one originally intended them. However, that raises the broader question of whether that is the best way to assist the people in desperate need, whom one is trying to help, in the first place – if indeed one were channelling funds through a medium that had difficulty focusing on where it should apply the aid rather than applying it in a more efficacious way than one could if one did so it directly through embassies, the British Council, other aid agencies or non-governmental organisations. 

Miss Julie Kirkbride (Bromsgrove): I agree with my hon. Friend, who raises an obvious question. Why do we not give the money as direct aid rather than through a bank? What are the advantages of giving it as suggested in the order? 

Dr Lewis: I think that my hon. Friend divines the thrust of part of my line of questioning. I hope that I may gently channel her question through the medium of my contributions in the direction of the Minister, who will be able to reassure us, I trust, that there are certain ways in which intermediate institutions can do a better job than we would if we tried to do all the work ourselves. That is really what we want to hear. 

As was pointed out in some detail in earlier contributions and interventions, a better job is something that has not happened to money channelled through the European Union. The point is not party political. The Secretary of State for International Development has rightly described as a disgrace the way in which the European Union failed to channel funding to, in particular, sub-Saharan Africa and others of the poorest countries, rather than putting it towards the middle-income countries. They may be geographically closer to the European Union itself, but are certainly not the countries most in need of the assistance.

The third aim listed in January 2000 was

''to start a process of re-engagement between the DFID Africa division and the bank with a view to helping it to improve the developmental impact of its country programmes.''

That again suggests some sort of breakdown in the relationship between our DFID operatives and officials and the bank. It certainly suggests, when one examines those three aims, that all was not well with this institution, even though at that time it was already being reported that, under the new president, it had raised its game significantly from the dire straits into which it had got in the early 1990s.

I shall continue with the fourth of my 12 questions. In January 2000, the then Under-Secretary reported that despite an upturn in performance by the African Development Bank,  

''in terms of the quality of its lending programmes, the bank still has some way to go to reach the level of the other regional development banks.'' 

He continued by saying that it was especially

''hampered by inadequate staffing and delays in developing the right skills mix''. – [Official Report, First Standing Committee on Delegated Legislation, 25 January 2000; c. 3.] 

What improvements have there been in those regards in the past three years?  

Mr Mark Field (Cities of London & Westminster): I appreciate that the African Development Bank has a broad and extensive range of activities. However, given the increasing importance of the Commonwealth Development Corporation and the increasing extent of its work in Africa, does my hon. Friend think that there is an opportunity, through, dare I say it, joined-up government, to use some of the CDC's expertise to channel the moneys that we are donating to this bank? 

Dr Lewis: I am very sorry to say that I must disagree entirely with my hon. Friend. What he said would have been absolutely true had we been talking about this prior to the attempt at part privatisation of the CDC. However, my hon. Friend the Member for Meriden encouraged me and others to apply for a one-and-a-half hour Adjournment debate on the subject of the CDC, in which we expressed our grave concern that the CDC was no longer doing the sort of grant-giving and loan-making on extremely favourable terms which in the past had been so successful.

We thought it was a strange choice for the Government's first part-privatisation project and that it was a mistake. We also thought that all sorts of good projects that the CDC had undertaken with considerable success in the past, in terms of humanitarian success rather than simple cash profit and returns, were now having the skids put under them, to put it bluntly, and that the CDC was becoming a much more commercially-focused organisation.

I only wish that my hon. Friend's suggestion was a course that we could follow, but I am afraid that our concern is that the CDC is no longer a player in this field to anything like the same extent as it has been under successive Governments since it was set up by the first post-war Labour Government in the late 1940s.  

My fifth question is to ask what the Government's policy is towards encouraging the African Development Fund to apply some of its resources as grants rather than interest-free loans as at present. Loans serve to swell the total of irredeemable debts. We are concerned that, in the medium to long term, the giving of loans even on favourable terms could be storing up trouble for the future.  

Sixthly, what input will the Government have in terms of setting priorities for the ADF to apply? We heard that the time of replenishment is when we have an input into the setting of priorities. We would like to know whether that process is under way while the replenishment negotiations continue, or at least what input the Government have in assessing the priorities that the ADF has decided that it wants to apply.  

Seventhly, what indications have there been in recent years of the ADF's fulfilment of its poverty reduction goals?

Eighthly, what part has good governance played in decisions made by the ADF to give interest-free loans?

Ninthly, what can the Minister tell us about the policy of the ADF in respect of Zimbabwe? It would be understandable if anyone trying to help in that area were not to be torn on the basis of good governance. One might say that we should do as little as possible to assist Zimbabwe on the basis of the terrible drought that has struck southern Africa, which has been exacerbated by the incompetence and the criminal neglect and misbehaviour of the Mugabe regime. Nevertheless, humanitarian considerations would lead us to say that we should still assist as much as we can. We are on the horns of a dilemma, and I would be grateful for the Minister's enlightenment as to how the Government intend to approach that problem in relation to their dealings with such bodies as the African Development Fund.

My tenth point is whether, South Africa having experienced its worst drought in half a century, the ADF has been able to give practical help to the other countries besides Zimbabwe that have been affected – Malawi, Mozambique, Swaziland, Zambia and Lesotho? My eleventh point is to ask what assistance the fund has given and what strategy has it developed in respect of the AIDS pandemic? I shall give a small selection of horrifying statistics. It is estimated that a quarter of the adult population in Zimbabwe carries the HIV virus, but that figure rises to 40 percent in urban areas and possibly to as much as 80 percent in the army. Life expectancy in that benighted country is now poised to fall to merely 38 years.

Finally, does the Minister view our contributions via the African Development Fund and the Caribbean Development Bank as a means of compensating for the bias – it has been referred to several times today – in the application of the EU aid budget, which the Secretary of State rightly denounced as disgraceful for its twisted priorities and its bias against helping the poorest countries.

The Minister will be relieved to know that I have only six questions on the Caribbean Development Bank. First, in a positive vein, I note that, according to DFID, the CDB's strengths lie in its close contact with its borrower member countries, which enables it to be in tune with their needs and to offer them good access to policy-makers in the Caribbean. DFID describes the CDB as a specialist Caribbean institution, staffed by people from the region, and says that Caribbean countries have a high degree of ownership of, and commitment to, the bank. CDB's local knowledge and its location within the region, therefore, provide it with a comparative advantage in processing small and medium-sized loans that the larger multilateral development banks find too costly to administer.

Given the attitude that the Opposition have taken towards the Commonwealth Development Corporation and its over-commercialisation, it would be odd and totally inconsistent if we did not applaud the CDB for being able to make precisely the sort of loans, on precisely the sort of generous terms to precisely the same sort of people who need our help, that the CDC used to make but which it sadly no longer appears to be doing.

Our concerns are as follows. The first is whether the loans being made are adding to the cycle of unpayable debt. We would like to be given assurances by the Government that the Caribbean Development Bank does not and will not adopt irresponsible lending policies to poor countries, specifically from the concessional lending arm and special development fund, which is precisely the arm that will receive the £17.5 million that we are discussing.

In the past, some development banks have lent money to poor countries when there was very little chance of the loans being repaid, no matter how generous the repayment terms. That, combined with poverty levels in poor countries and with incompetent government, has led to unsustainable debt burdens.

At the moment, many of the poorest countries receive debt relief under the Heavily Indebted Poor Countries initiative, but debt relief is only part of the solution. Unsustainable debt can become a vicious circle, and the manner in which poor countries are lent money must be reformed. Poor countries will never exit from unsustainable debt burdens unless development banks adopt more responsible lending policies.

Our second concern relates to encouraging diversification in the Caribbean economies. The countries that borrow from the Caribbean Development Bank are, for the most part, island communities, which generally depend on tourism and exporting one or two commodities, such as sugar and bananas. As such, they are exceptionally vulnerable to market forces. A downturn in prices for sugar and bananas is hitting Caribbean economies hard, and it is important that they are encouraged to diversify as far as possible into other industries and exports.

DFID appears to have some reservations about the capacity of the Caribbean Development Bank to encourage diversification in Caribbean economies. According to a DFID institutional strategy paper,

 ''the CDB's structure has limited capacity to react quickly to the changing needs of its borrowers''.

 The paper also says that

''capacity constraints and the CDB's limited research and analytical capacity have not allowed the Bank to play a major role in policy dialogue with Caribbean governments, or on the wider social and economic challenges facing the region''.

What actions are the Government taking to improve the CDB's capacity to respond to the borrowing environment's changing requirements?

Thirdly, I come to the impact of trade liberalisation on developing countries. The Opposition support moves to liberalise trade as a means of promoting economic growth and poverty reduction in developing countries, but many countries will have to make preparations for the impact of such liberalisation. Many African producers produce commodities at lower costs than their Caribbean counterparts: sugar and bananas crop up yet again. What does the Caribbean Development Bank propose to do to assist Caribbean exporters whose livelihoods will suffer as a result of agricultural liberalisation?

My fourth point concerns accountability. What supervision does the Secretary of State – or, in this case, the Minister – envisage for the distribution of CDB funds? Will there be direct authorisation by DFID of decisions taken by the Caribbean Development Bank? As far as we know, there has been no real study of the effectiveness of the CDB's lending policies. Studies of the World Bank's concessional lending suggest that unscrupulous governments diverted an unacceptable number of past loans for their own benefit. According to The Wall Street Journal of 26 July 2001, the World Bank's own evaluation is that less than one-third of its projects in poor countries yield ''satisfactory and sustainable results''. Is the situation any better at the Caribbean Development Bank?

My fifth point is about duplication. The Caribbean Development Bank is not the only bank that lends to Caribbean countries. The World Bank, the Inter-American Development Bank and the European Investment Bank also lend to the region. In fact, the CDB accounts for only about 16 percent of multilateral development bank lending to CDB borrowing members. What links and partnerships are there between the CDB and those other regional development banks to prevent unnecessary duplication of resources and to ensure that funds are allocated more efficiently?

The way in which the World Bank competes with regional development banks causes some worry. Regional development banks compete with the World Bank for donor funds, clients and projects, and their local offices are often in the same cities. The regional banks repeat the World Bank's organisational structure, yet, in the year 2000, the World Bank expanded its field offices, increasing duplication and potential conflict in the regions. When the United States Government investigated, they received no reasonable explanation why such costly expansion was chosen over closer co-operation with the regional banks and reliance on their personnel. To what extent do the operations of the CDB and the World Bank overlap?

Finally, I refer again to the question of grants versus loans. Has there been any suggestion that the Caribbean Development Bank might turn some of its loans into grants? The World Bank recently decided to administer approximately 20 percent of its loans to the poorest countries in the form of grants, which are given on condition that the money is well spent and there is no corruption. The value of grants is that they do not have to be repaid, which avoids the prospect of the poorest countries accumulating unpayable debt burdens.

The decision by the World Bank to convert 20 percent of its loans into grants was highly controversial. The United States originally proposed that up to 50 percent of loans should be converted into grants, a figure that was reduced to 20 percent after a long period of negotiation. Our Secretary of State was strongly opposed to the US proposals, maintaining that if the World Bank did not expect the money to be repaid, its future funding would be cast into doubt.

That is a long series of questions, but I know that the Minister has a great deal of material at her fingertips.

Mr Dennis Turner (Wolverhampton, South-East): I wonder whether the hon. Gentleman can tell us whether he and his party will support the two draft orders?

Dr Lewis: I thought that I had made it clear in my opening remarks that there has always been consensus over the funding of these organisations. Given what has been happening in Africa, however, we believe that in order to justify spending so much money – the hon. Gentleman should compare the amount that has been spent in the past with what we are proposing to approve today – we would be failing in our duty if we did not subject the proposals, as well as the operations of the organisations involved, to the closest scrutiny. We have no intention of opposing the granting of the awards today, but we hope to put down a strong and comprehensive series of markers, which will enable those who come after us and look back at today's debate, in perhaps three years' time – just as we look back at the debate held over the African Development Fund in January 2000 – to see to what extent these organisations deserve the support that they will continue to receive today.

I am sorry that my list of questions is so lengthy, but I am sure that the Minister will appreciate, particularly following the expressions of concern made in European Standing Committee B, only two days ago, about the terrible crisis – indeed, the holocaust of the AIDS pandemic – in Africa, that there is strong feeling that the necessarily limited aid that is given by the wealthy countries to the poorest should not be frittered away through inefficiency, incompetence or corruption.